Q2 2022 Shoe Carnival Inc Earnings Call
Profitability growth has accelerated as 2022 progressed.
Our merchant organization has worked in close partnership with our strategic vendors throughout the year together they delivered the freshest product assortments from our customers' favorite brands and applied customer analytics to unlock highly profitable promotions.
This resulted in Q2 operating profit margins of 12, 4% and marked the sixth consecutive quarter and double digits.
We were most encouraged that operating profit delivered sequential growth in Q2 above the 11, 1% operating margin achieved during Q1.
To further illustrate the profit transformation the company has achieved.
Operating profit margin was five 9% for the prior 10 year period.
Throughout 2022, we've been lapping the stimulus impacted 2021 quarters.
The more normalized quarters with no stimulus benefits in 2022 have helped provide clearer visibility into the sustainability of our operating profit levels.
As such today, we are increasing our operating profit margin expectations for 2022, and providing guidance to achieve between 11, 4% and 11, 6% operating margins doubling the companys historical levels.
We believe the best way to understand the underlying sales and customer growth achieved and sustained at shoe carnival. During these COVID-19 impacted and stimulus benefit years is the bench mark back to 2019.
Overall sales have grown 26% for the first half of fiscal 'twenty two customer accounts for our loyalty membership climbed to just below $30 million at the end of Q2, setting a new record up 28% compared to 2019 and up nearly 7% versus 2021 <unk>.
Athletic sales growth has been exceptional up over 30% versus 2019.
During Q2 of 2021 the company grew net sales 10, 5% on top of 12, 1% in Q2 2020.
Compared to 2021 net SaaS retreated, 6% during Q2 2022.
The team posted solid non athletic category performance across genders, and styles offset by declines in our athletic categories driven by supply chain delays.
Related to the supply chain.
Key athletic inventory shipments plan did not make it fully through the global supply chain and into our stores and time to support our June and July sales as planned.
While we forecast that athletic sales to pull back during Q2 due to our customers have been loaded up on athletic product. During 2021. This supply for later led to steeper declines.
Carl and Carrie will break down the category trends and our overall inventory position shortly.
As Q3 began the delayed athletic products began to arrive, but we remained below our desired inventory levels. This quarter as we replenish stores as such we are updating our annual sales guidance to $1 $2 9 billion to $1 $3 4 billion.
While below our original growth ambitions for 2022 topline. This sales range represents growth of 24% to 29% versus 2019 Demi.
Demonstrated top tier growth levels in the channel.
Other reflects the challenging inflationary environment, our consumers now facing and includes the short term disruption to our 2022 athletic supply.
After growing net sales, 36%. During 2021, we are encouraged by sustaining growth levels between 24% and 29% versus 2019 and to build up a record customer counts level to engage with ongoing.
I would like to now share an update on Q3 to date and our most important months of the year the back to school period of August .
We are seeing encouraging back to school profitability results in the third quarter.
Sales through August 24 have increased over 15% compared to 2019 and include the best three days of sales at any three day period and shoe carnivals history.
Profitability for the month is very strong with gross margins on pace to grow 650 basis points versus 2019.
Based on the previously discussed athletic inventory position, we are including in our guidance at Q3 sales will be down versus 2021 in the low to mid single digits.
August back to school shopping typically drives over half of our third quarter profitability.
Taking into account the sales and profit achieved quarter to date Q3 is pacing on track to deliver our targets for gross margins for SG&A and for operating profit.
With a $1 99 of EPS achieved during the first half of the year plus the solid Q3 profit start in hand, we are reiterating our annual guidance for earnings per share between $3 95.
And $4 15.
Combining the sales ratings guidance the increased operating margin range and current inflation trends, we anticipate sales and earnings per share is most likely to deliver on the mid to lower side of our annual 2022 guidance.
Moving on now to an update on progress towards our key strategic plans.
First our shoe station banner continues to outperform expectations on all fronts sales were $54 million. During the first half of 2022, we now expect schuh station sales to exceed our previously announced full year expectations of $100 million.
By approximately 10%.
Operating profit expectations were previously communicated at 10% for 2022.
Our integration efforts of the recently acquired banner, our pacings far ahead of our preliminary timelines.
We have realized significant back office synergies as well as gaining efficiencies and best practices across merchandising operations and marketing.
Such we are raising our operating profit expectations for schuh station to a range between 11% and 12% for 2022.
Finally, new store site identification efforts continue to progress throughout this path and we expect the growth of 21 store chain acquired to 30 stores during the fiscal 2023 horizon and to build out the expansion roadmap to exceed 100 stores in the next five years.
Second we continue to make significant progress on our fleet modernization program.
Our plan to have over 50% of stores modernize by the summer of 2023 and the full program complete by the end of fiscal 2024 is on track.
In addition to the moderate shoe Carnival experience rolling out now we are launching a shoe station modernized prototype store in Q4 of this year and new store openings in both Alabama and Georgia.
Third we continue to improve our advanced CRM analytics, and digital marketing capabilities, which allow us to have one on one communication with our customers.
These highly profitable tools give us the targeted platform to reach our customers via text and email, but we're able to drive sales at attractive margins and without deep unprofitable promotions.
During this quarter, we will complete the shoe station integration into our CRM organization and platform technologies, and we will extend our shoe perks loyalty program across both banners.
We will be sharing early results of the CRM launch at our Q3 earnings call.
We're still very excited to begin building CRM excellence and shared insights across the enterprise and this will further improve profitable growth across the banners.
Fourth we are planning to rapidly expand scale in the next five years.
<unk> Carnival is on track to operate 400 locations by the end of this fiscal year and we are not expecting any store closures. This year. This is such an exciting moment for the enterprise having completed our store productivity improvement plan 2022 marks the first year and two one years and no stores were closed.
In conclusion, we have undergone a sustainable profitability transformation and are seeing profit growth accelerate sequentially that are very encouraging rates during 2022.
While lack of athletic inventory limited our sales potential in the first half of 2022, we delivered excellent gross margins double digit operating margins and earnings per share that was more than 43 or 44 prior full year earnings already.
Our customers remain highly engaged despite the inflationary pressures we've generated the critical profit plan during our key back to school season, and we are on track to deliver against our financial and strategic targets for the remainder of fiscal 2002.
With that last call to discuss our performance further.
Thank you Mark as Mark highlighted today's results are strong evidence that our strategies are working however, during the second quarter, we experienced a shift away from our normal 50, 50 Atlantic non athletic sales balance we.
We anticipated this move to consumer demand to non athletic product and positioned inventory should take advantage of this fashion change.
Supply chain issues impacted Atlantic inventory availability despite.
Despite our unparalleled vendor relations, we were simply unable to deliver enough new athletic receipts to meet demand within our athletic product categories Atlantic inventories ended the quarter down high teens versus 2019.
Our team continues to diligently to manage the supply chain and looking ahead, we believe Atlantic inventories will replenish as we move through the third quarter.
In addition deliveries of new fall non athletic product are flowing much better than 2021, and we are well positioned from an inventory perspective to deliver on the sales and profit guidance for the remainder of the fiscal year at.
At quarter end, our inventory forward weeks of supply was down 6% versus 2019 importantly.
Importantly, both aged inventory in seasonal carryover inventories are in line as a result, we do not have a glut of inventory and see no need for deep discounts are dumped goods in the second half of the year.
Turning to results Mark mentioned the challenges we saw within the Atlantic areas. The quarter started off strong and sales weekend as Atlantic inventory levels slipped by quarter's end due to late deliveries the quarter finished with men's women's and children's athletic comparable store sales down low teens compared to $2000.
19.
Versus last year. These categories were down in the mid twenties. However.
However, as I previously highlighted we saw continued strength in non athletic shoes women's non athletic was up in the high Twenty's versus 2019 sales.
Sales were driven by addressing up over 50%.
<unk> up in the high Thirty's and sandals up in the mid teens.
Men's non athletic sales were up in the mid Twenty's versus 2019 men's dress and casual shoes were both up over 20% with men's boots up over 30%.
Children's Athletic sales were up in the high Fifty's increases were driven by children's casuals up over 90% in infants up in the high Seventy's.
Versus last year Womens was up low singles in men's and children's were down mid singles with.
With the trends, we are seeing and the anticipated product flow, we see strong sales results in non athletic categories for the remainder of 2022.
As Mark highlighted earlier, we continue to deliver excellent product margins.
Using the data provided from our best in class CRM, we continue to drive a loyal customer growth.
This data gives us insight into our consumers and gives us a path to engage with them through smart effective promotions that are not margin dilutive.
Before turning the call over to Kerry I would like to highlight one of these ongoing promotional strategies. We recently created an inflation Buster program that highlighted key back to school products and brands, along with store wide events as well as gasoline and grocery incentives to our customers. This drove increased traffic.
At accretive margins, we engaged our existing consumers, while new loyal customers drove store traffic and build brand loyalty.
With the help of these innovative analytics based marketing campaigns, we are confident that our marketing and promotional strategies will continue to drive the margin levels, we have seen in the past several quarters.
In fact, this inflation Buster promotion produced the best three combined sales days of any three day period in the company's history and delivered a strong margin levels, we have seen throughout the entire year.
Based on the strength of the emerging fashion categories.
<unk> inventory flows improving and effectiveness of our modernized promotional strategies, we feel confident we will deliver on the sales and profit guidance for the balance of the year.
With that I will turn the call over to Kerry for a review of our financials Gary.
Thank you Carl.
I'm excited to share with you the financial highlights from another successful quarter, which again demonstrated a transformed and sustainable profitability profile for the company.
Similar to previous quarters, where compare results versus 2019, as we see as the most relevant and normalized periods prior to the start of the pandemic.
Net sales in Q2 were $312 3 million and were the second highest Q2 sales in our history surpassed only by Q2 last year.
These sales increased 44 zero million or 16, 4% compared to the pre pandemic second quarter 2019, driven by sales from the shoe stations banner and a comparable store sales increase of 8% from the shoe Carnival banner.
Year to date net sales have increased $107 8 billion or 26% compared to 2019 with both store banners contributing nearly equally to the year to date increase.
Sales from the shoe station banner stores acquired in December 2021, or opened in 2022 added net sales of $27 2 million for the quarter and $53 4 million year to date.
Against last year's stimulus enhance Q2 total sales in Q2, this year were down 6.0% and comparable store sales declined 13, 8%.
These results were against the comparable store sales increase of 11, 4% in Q2, 2021, which was on top of a 12, 6% increase in Q2 2020.
Our Q2 gross profit margin was 36, 2%, a 560 basis point increase compared to second quarter of 2019.
An increase in merchandize margin of 680 basis points was partially offset by a 120 basis point increase in distribution costs due to the impact of inflation on transportation and fuel expenses.
Excluding the impact of transportation and fuel costs, our merchandise margins increased over 800 basis points.
We expect higher transportation and fuel costs persist for the remainder of the year. However.
However, we feel the year over year increase will continue to moderate in the second half of this year, allowing us to leverage our buying distribution and occupancy costs by 30 basis points or more compared to the second half of 2019.
SG&A expense in Q2 was $74 3 million or 23, 8% of sales compared to $66 4 million or 24, 8% of sales in Q2 2019.
We leverage these expenses by one percentage point due to the higher sales in the quarter.
Q2, operating income was $38 8 million or 12, 4% of sales.
This is in line with expectations of the annual double digit operating margins, which are more than double our historical run rate and as Mark mentioned this is our sixth consecutive quarter of double digit operating income.
Net income for the second quarter of 2022 was $28 9 million.
$1, four and diluted earnings per share.
This is the second highest Q2 diluted earnings per share in our history.
And an increase of 160% compared to the second quarter of 2019.
We closed out the quarter with inventory up $385 5 billion, which.
Which is up $48 6 million compared to the second quarter 2019.
Approximately 59% of the increase in inventory for the shoe station stores acquired last year are open this year.
The 14, 4% increase in inventory is supportive of the 26% increase in net sales year to date compared to 2019.
And the expectation of increases in sales for the remainder of the year.
At the end of Q2, we had total cash cash equivalents in marketable securities of $62 6 million and no outstanding debt.
As is typical for this time of year, when we're building our back to school inventory we.
We expect our cash balances at the end of Q2 to be the low for the year.
With the influx of cash from sales in August today, our cash balances are more than $100 million.
With the expectation of positive cash provided by operations in the second half of this year.
We should end the year at cash balances a little below last year's ending balance of $132 million, excluding the effect of any additional share repurchases.
As of July 32022, the company had $29 5 million available for future repurchases under its share repurchase program and.
And during the second quarter no shares were repurchased.
Summarizing our expectations for 2022 fiscal year.
We expect sales to range from $1, two nine to $1 3 billion.
Gross profit margin to range from 36, six to 36, 7%.
Operating margin to range from 11, four to 11, 6% and diluted earnings per share to range from $3 95 to four.
$4 15.
However, based on our year to date performance and second half expectations, we're more comfortable with the mid to lower range of our annual guidance.
In closing our second quarter results are a continuation of increasingly sustainable profitability for shoe carnival compared to pre pandemic levels.
We are confident in our ability to execute in the second half of this year and we are poised for long term growth through a combination of our organic store expansion and modernization.
And selective acquisitions.
This concludes our franchise view now I'd like to open the call for questions.
At this time, if you would like to ask a question simply press star followed by the number one on your telephone keypad.
Maybe I'll take the first question from the line of Mitch comments with Seaport.
Rich.
Yes.
Yes, Thank you and thanks for taking my questions.
Carl I, just wanted to better understand the athletic business and the inventory. There I think you made the comment in your prepared remarks that going into the quarter that you position the inventory more.
Towards non athletics, so I guess I'm trying to understand how much of the athletic maybe.
Maybe shortfall I don't know shortfall is the right word.
Was due to kind of how you position the inventory going in versus some of the supply chain challenges that occurred during the quarter or late in the quarter can you just maybe go through that a little bit.
Sure Mitch we play in the athletic business for the quarter to be relatively flat.
And it was hurt obviously by delayed in athletic receipts of fresh new back to school products. So at the beginning of the quarter. We were in good shape sold through the product and the deliveries.
Were pushed back.
That really affected the sales on the.
Atlantic side on the non athletic side, we've been aggressively going after that business frankly over a year as we saw consumers move to the more fashion categories based on multiple years of taking that off and really focusing on athletic and products that were.
Really more more.
Tied into staying at home and outdoor physical activity.
Okay.
And then in the press release, you mentioned that.
Based on the weekly averages in the quarter athletic inventory was down like 26% year over year.
So where does that stand now and where do you see that kind of moving through the third quarter.
Yes.
Atlantic inventory Mitch yes.
Yes.
We see it improving information, we're getting from our athletic resources shows an improvement in deliveries as we moved through the quarter and we anticipate by the ended the quarter for our inventory to be in the position that we wanted to be in.
Okay, and then I'm trying to reconcile the sales guide a little bit I think you guys said Q3 down low to mid singles.
If I take down mid singles I think that implies.
The three year sales growth is up kind of low to mid twenties again on a three year and it sounds like your August to date sales are up 15 on a three year. So help me understand how we get from kind of mid teens to low to mid twenties on a three year or is that just again based on the improvement of the.
The inventory situation.
Hi, Mitch it's mark.
It's twofold, it's one continued improvement with the athletic inventory situation as Karl already addressed that.
Second it's off slow traffic improvement, we've seen a direct correlation to the price of gas and the inflation spiking in the mid June and July time of gas surpassed $5 across the markets. We operate in there's a direct correlation to traffic declining.
From what was positive traffic in the beginning of the quarter it turned to low double digit negative.
In the middle of the quarter and as gas prices receded as we got towards the end of July and August traffic has rebounded back to low single digit decline to low <unk>.
Positive increases day by day.
So in summary, we see the traffic in fact tied to inflation combined with the the short fall of about unexpected athletics and Q2 being an anomaly to the year.
And we will see that improving sequentially. We believe we're already seeing it in Q3 as we've shared with very strong results.
Okay, and then lastly.
Could you speak to the difference.
In performance between Schuh stage in the shoe Carnival businesses I know the consumers are a little bit different the merchandize mix is a little bit different.
Just wondering if as.
As you think about the consumer and the health of the consumer the impact of inflation Mark you talked about gas prices are you seeing much difference in how those two consumer groups are behaving or kind of merchandise that you are selling or maybe the price points that youre selling in schuh station versus Carnival I know, it's kind of a different price point.
Structure, so maybe just discuss that a little bit and that's it for me. Thanks.
We're seeing shoes stations far outperformed what we thought our hypothesis was the shoe station banner had a complimentary consumer that.
That was higher household incomes above $50 to 70000 range.
And our belief would be that during inflationary timeframes that would help balance out the business. What we're seeing is absolutely true the shoe station business is continuing to show resilience the consumer's healthy.
Sales continue to far outpace our expectations.
There is no inventory concerns are back up and in fact profitability from early synergies as far outpacing as we've guided higher sales higher profitability for this first year.
The consumer is healthy issues station.
It is acting differently than the lower demographic segments of the shoe Carnival banner, particularly the urban consumer that has really been pressured as inflation spiked in Q2, we're very very pleased with what we purchased I think our message is this growth engine is ready for rapid.
They expand and we're going to be doing so in the next years.
Okay. Thanks, again and good luck.
Thank you mentioned.
Your next question comes from the line of Sam Poser with Williams trading. Please go ahead.
Thanks for taking my questions gentlemen.
Just can you.
Can you give us.
Are you on.
You talked about shoe station.
When we look at.
I mean are you are you being conservative with the $110 million now based on the trends, we normally issue stations back half revenue better alright.
<unk>.
First half revenue I mean can you give us some historical and secondly, based on my math as terrible as you all know so based on near.
Near numbers, what what is the.
EPS accretion of.
Of shoe station.
Hi, Sam.
Hey, Sam it's mark up with $54 million in the first half achieved the shoe station. We're on track to surpass the $100 million original guidance by approximately 10%. We think the run rate takes us to that range of about 10%.
Meyer for the overall year, what was really pleasing those with the integration efforts and the synergies coming across the entire back office things like accounting and human resources, that's often synergize now into the shoe carnival broader enterprise our original expectation of 10% op margin now is pacing.
<unk>.
The 11% to 12% and will be either in line with shoe carnival or has the potential to be slightly accretive if synergies progress even further.
And as.
As far as the EPS associated with that.
Kerry.
We should.
I don't have that with me right now Sam will have to get back to you on that.
Okay.
And Carl.
When when you break down the non athletic trends I know you guys.
Look at it a little bit differently than others, where not every relative to same way can you give us some of the categories.
Within non athletic that Youre, seeing let's say, the best and where Youre seeing the best improvements.
On dress.
Is that how sustainable do you believe the dress and dress businesses.
Sam I think the dress business is very sustained but we've been running really hot on dress shoes since April 2021.
So I see that business continuing to be strong as consumers.
Fill their closets backed up with more current product.
And we see that progressing and in multiple categories of dress.
And that the fashion elements that we started seeing emerge in fall of 2019.
Sort of took a hiatus for 2020, one based on the consumers behavior change because of the pandemic.
Those same trends and I'll, just say late Ninety's trends.
And casual and sport shoes more aggressive bottoms.
Combat platforms, all of that business and the non athletic area continues to emerge and gained traction as well as the.
Non athletic canvas piece of the business.
And then lastly can.
Can you talk about what youre seeing for product inflation on like for like product.
Yes.
We saw an inflation rate on products that.
Going into third quarter that was probably I would say high single digits.
Seeing that tempered now with the cost of freight and the cost of containers going down.
We have not seen any resistance by our consumers to any price increases that we were forced into based on inflation and we do see that.
Leveling out as we move forward.
Can I sneak in one more.
Carl.
The amount.
What percent of your product.
Would you call new.
At this time of the year versus the same time.
Pre pandemic.
Okay.
I would say I would say.
Pretty much as it was pre pandemic.
I don't see any major change from that from where we were in like I said.
In my remarks deliveries of not a lot of products are coming in just buying much better than a year ago much more in line with where they would've been in 2019.
And and build inventory, we feel boot inventory will flow much better than a year ago, and we feel we feel good about that.
Food opportunity compared to a year ago with the disruptions, we had supply chain last year.
Alright, thanks, very much and continued success.
And let me finish off the question you asked about the EPS at the high end of our guidance.
Shoe stations should be about 35 cents of EPS accretive.
Yes.
Okay. Thanks, Karen.
Your next question comes from the line of Jim Chartier with <unk> Crespi Hardt.
Please go ahead Martin good morning, Thanks for taking my question.
Okay.
Do you have any incremental cost related to the integration of shoe station.
In the first half of the year and then.
Any cost in the back half related to that either.
Not material and not that we werent expecting.
Okay.
And then a shoe station.
How is the e-commerce.
Launch coming there is it going to be ready for fourth quarter.
What's the outlook for that.
Hey, Tim it's Mark.
Launching our CRM platform. This quarter, we're thrilled that we're bringing them onto the technologies that have been so successful here and shoe Carnival, we're rolling out the <unk>.
<unk> program across banners again later this quarter, which will have us.
Over 30 million consumers, we can talk to on a daily basis and.
And then our plan is after thats completely launched and up and running this quarter will be ample to rollout our shoe station dot com by the.
The holiday season. This year is our plan.
Great.
And then any.
Thoughts on kind of a store opening pipeline for next year.
<unk> said.
30 stores for Schuh station by the end of next year more scale look for the shoe Carnival banner.
We're still we're still aiming to open double digit store counts annually, starting in 2023 and accelerate as more real estate.
Comes available in 24 in out years and we're on track.
Gross of 400 store count, which is quite a important milestone for us and as we've said, we're so proud that we've completed that store productivity plans and the entire fleet now is remaining open with our current view with no store closures for the first time in two decades.
As you said specifically issues station. It was 21 stores when we acquired it in December last year, we are on target to surpass 30 stores by the end of fiscal 2023, and we're looking for new sites as quick as they become available.
Great. That's all I had best of luck.
Thanks, Tim.
Your next question comes from the line of Mitch <unk> with Seaport research.
Yes, Thanks, a couple of follow ups.
Carl I think you just made the comment in response to one of the Sams questions that you feel good about your boot inventory, especially relative to last year can you remind us.
Of some of the constraints around boots last year kind of how that business played out in the fourth quarter. Just so we have a better sense of the comparison and then you also talked about some of the trends that you said kind of address some <unk> things like that.
So how do you feel about those trends and how important are they to Europe .
Particularly in the fourth quarter, and then I have one more.
Sure Mitch both deliveries frankly lagged throughout the entire.
Timeframe.
Move back anywhere from 30 to 60 days with foot, which obviously.
US and intuitive a pressure situation on inventory levels as we came through the month of October into November December and even into January .
We see a more normalized flow of deliveries like we had in 2019.
We think thats opportunity as we go.
With a much more normalized inventory flow.
As far as what we see in boots as trend, we continue to see combat and lace up boots, performing well and we see that strong specially with some blood bottom chunkier heels on them.
We continue to see beauty, especially Chelsea booties being really strong.
And then Ah.
A little bit of other boot categories that are out there, we see some platform dress boots, and maybe a little bit of although not a big category anymore, but maybe some.
Some license some of the taller shafted boots.
But we feel good about the opportunity.
So I've got a follow up on boots, and then one other question.
If I recall correctly.
Given some of the late deliveries on boots last year I think some of the stuff may have not hit the left a warehouse and gone to the stores and so there was some pack away I.
I would guess that.
That would be pretty margin accretive given kind of the cost on some of that product versus maybe some of the stuff that you're buying more for fall 'twenty. Two is there is there any benefit on the margins from that I mean, I don't know if its material or not and then I have one last question.
There will be benefits of the margin on those particular items that I think they may offset some of the places we saw other.
So we're delivering new.
I don't know that.
<unk>.
Significant to the overall.
Okay, and then lastly, you guys are tracking to an 11, 5% op margin.
This year and I think when we kind of look at the year, it's kind of a tough macro with the consumer and inflation and there's higher distribution costs.
So I'm just kind of curious what's your takeaway on that obviously that well.
Well ahead of where you were.
And you've made a lot of changes to improve the profitability of the business.
Given some of the challenges this year to be able to kind of accomplish that level of margin is that do you think that that's kind of a new base that you could potentially grow on next year.
Especially on the maybe the freight distribution.
Cost side, if that were to improve a little bit next year I don't know how you think about that.
Hey, Mitch its mark this absolutely is a new base for six quarters into double digit operating profit.
We've shared.
Sustainably.
Doubled the levels they were at pre pandemic and we do see that this Q1, and then Q2 sequential improvements of operating margin gives us the clarity we needed is what that new basins that clearly isn't the base of 2021 that watermark was.
Inflated with low promotions, but we're seeing the competitive environment in 2020 to have us back to a normal cadence of promotions.
Healthy cadence of promotions, but the key differences what we've alluded to for the last few years, our investments in CRM and analytics and in changing the way. We promote is transform the profitability of our promotions, but without a shadow of a doubt no instruments understand where value based retailer and continue to be.
And our promotional driven by those promotions are incredibly profitable with all the learnings we've gathered over the last few years compared to where we were and Thats generated margins that were up 560 basis points for Q2 are as I've said in my speech and a further acceleration in August with up over 600.
50 basis points expected for the month of August .
So without a doubt but to be clear, we see operating margins in the double digits sustainable we've see this setting the new base and we will see synergies and efficiencies help us grow as the inflationary environment calms down at whatever point that does in the future.
Okay, great. Thanks again.
Okay.
Your next question comes from the line of Sam Poser with Williams trading.
Alright, Thank you and just a quick follow up to that Mark you talked about the margins in August being up but given <unk>.
Given the.
The the late shipments of.
<unk>, how much is mix, helping that margin like is that margin a little overstated because from what I understand non athletic runs higher margins in athletic and so so if you sort of balanced out sort of a normal I know its still be up a ton but.
If you if you balanced out a more normalized product mix between athletic about athletic.
What would you foresee the margins to be up.
Yes, we see Q.
Q3, and Q2 are sustainable it's a razor thin youre right the mix impact from the Athletica challenge it causes a razor than change in margin. However, we'll also be able to get better <unk> from.
From lower distribution costs.
Continue to settle down in the supply chain.
The puts and takes have us confident that this is the right operating profit. This is the right gross margin we have a real space now to start comparing too as we get into 2023 and stopped laughing these stimulus infused quarters.
And yes.
This is just to clarify that so youre, saying sort of in that high 36 is.
As we will establish itself as the new base.
Correct.
Sure.
Okay, alright, thanks very much.
Thank you all the best.
Thanks, you too.
There are no further questions at this time, Mr. Worden, I'll turn the call back over to Ian.
Well. Thank you all for joining today's call and I'd like to thank our shoe Carnival team members, our customers our vendor partners and many shareholders. We wish you all a wonderful Q3 and look forward to sharing our successes with you in the near future.
This concludes today's call. Thank you for your participation.
Participation you may now disconnect.
[music].